What are Indirect Sales & How Can They Help Your Business Grow?
What are Indirect Sales & How Can They Help Your Business Grow?
There are many ways to grow a business. A key way is by increasing reach, accessing new markets, and reducing costs associated with direct sales.
Of course, if you’re looking to reduce the costs of direct sales, you’ll need to look at something more... indirect. To that end, today we’re examining the indirect sales model and how companies of all sizes—whether they’re large corporations or small businesses—can use sales partners to scale and grow.
What are Indirect Sales?
Indirect sales refer to a sales strategy where a company sells its products or services through intermediaries (sometimes called middlemen), rather than by selling directly to the end consumer. These intermediaries may be distributors, wholesalers, dealers, or agents. Indirect sales channels are gaining popularity in the market, especially with tech companies who use a Software as a Service (SaaS) business model.
Indirect sales have become more popular in recent years, as they allow businesses to grow their sales force without hiring sales representatives. Instead, companies invest resources in a partner relationship management (PRM) program to acquire new customers and expand their customer base.
How Does the Indirect Sales Process Work?
The indirect sales process can be different for every company, but typically involves the following steps:
- Partner Selection & Contracting: The parent company identifies one or more indirect channels to work within, and selects ideal intermediaries with access to a matching target market audience. The parent company will also decide if it will automatically approve new partners or have a screening process to ensure that partners have compatible values. The company establishes formal agreements with the intermediaries, outlining the terms and conditions of the partnership. Typically channel partners must agree to the terms of the parent company and have limited say over the agreements.
- Training and Marketing Support: The parent company provides product training to the intermediaries to ensure they have the necessary knowledge and skills to sell its products effectively. The company also provides marketing and sales support to the intermediaries, such as product literature, pricing information, graphical templates, and promotional materials.
- Sales: In reseller partnerships, the intermediaries pay for the products and receive them for resale to the end user. In affiliate marketing partnerships, the channel partner refers the customer to the parent company and receives a commission. In both situations, there is typically a partner relationship management system that, depending on the parent company’s channel strategy, will track incentives, payouts, and reporting.
- Ongoing support: Training and support doesn’t end after the initial onboarding. Rather, the parent company utilizes the functionality within its PRM system to provide ongoing support to the intermediaries. This includes product updates, technical support, and training. They also collaborate with salespeople at the intermediary company to provide regular updates about new products and sales strategies and learn what the channel partners think is working well or needs improvement. This allows the in-house management team to adjust strategy appropriately.
Indirect Sales Channels vs. Direct Sales
Indirect sales channels and direct sales are two different approaches for selling products or services, each with its own advantages and disadvantages.
With direct sales, the key advantages are a direct relationship with customers, higher profit margins due to not having to share profit with an intermediary, and potential for sales and marketing data collection. However, direct sales have higher costs due to marketing costs and salesperson salaries, and limited reach into new marketplaces.
With indirect sales, however, the parent company uses the channel partner to reach new markets. Therefore, there is typically a lower overall cost. The partners often open new doors to new markets and customer segments. In some cases, the intermediaries represent the parent company’s brand, which introduces new customers who may buy directly from them in the future. However, there is a notable lack of control over the sales process since the sales methods are out of the parent company's control. There are also reduced profit margins since revenue needs to be split between the parent and the partner.
Types of Indirect Sales Strategies
The sales world is full of opportunities and strategies, and indirect sales are no different. Each partnership type offers different things to the parent company, and business managers can leverage these different opportunities to grow their business.
Affiliate partners are sometimes called referral partners because they do not directly sell the parent company’s product. Rather, they refer their customers or followers to the parent company where the purchasing transaction is made. This is typically tracked using a web cookie or personalized URL link. They provide it to their customers who use it to make a purchase, and the affiliate partner receives a commission for the sale. Affiliates use a variety of marketing channels like email, blog posts, social media, and referral URLs.
Amazon.com has an affiliate program called Amazon Associates which allows influencers, bloggers, and other businesses to make a commission when they refer their customers to an Amazon.com product. For example, a coffee shop that hosts a book club might provide affiliate links for their participants to order their books, and in turn will receive a percentage of the sale.
Resellers are intermediaries who purchase products or services from a manufacturer or distributor and then sell them to customers. They play a crucial role in bringing products to market and help expand the manufacturer's or distributor's reach. Resellers typically use their own sales force through direct selling and existing audience engagement/sales model.
These reseller channels are a collection of different models a company uses to expand its sales through a win-win agreement with a third-party partner purchasing a resale product. These differ from affiliate partnerships because the partner actively promotes and sells your product, not referring or connecting the end user to you directly to make the purchase.
A common example of using resellers for indirect sales is the technology industry, where manufacturers like Apple, Microsoft, or Dell sell their products through authorized resellers, such as Best Buy, Amazon, or Newegg, who then sell the products to end customers. This allows the manufacturer to reach customers in different regions or demographics without directly setting up and managing their own retail stores.
Independent Sales Representatives
To access local market expertise and save on hiring sales staff, companies will use independent sales reps (ISRs). These individuals work as independent contractors for the parent company, typically on a commission basis. ISRs can cover more ground and reach new markets and customers.
The ISR model is nothing new, having been a distribution channel for more than a century. The most well-known company to use independent sales representatives is Avon, which was established in 1886. At the time, independent sales reps sold books door-to-door. Later, they shifted to selling perfumes and other personal care products. Since then, ISR models have popped up across different markets, largely targeted at women and homemakers with companies like Mary Kay, Tupperware, Pampered Chef, Scentsy, and Young Living. Wellness and fitness companies joined the ISR marketplace in the early 21st century with companies like Shaklee, Shakeology, Advocare, Beachbody, and Herbalife.
Companies use system integrators as an indirect sales channel by providing a complete solution to customers by integrating products and services from multiple companies into a cohesive offering. System integrators offer specialized technical expertise in specific industries or technologies, making them ideal partners for companies that need to reach new markets.
System integrators can simplify complex sales cycles, shortening them by managing the technical evaluation, procurement, and implementation processes of various software solutions. Companies can save money by using system integrators to manage the sales and support of their products and services rather than hiring a direct sales force.
Advantages of Indirect Sales Channel Partnerships
Channel partners provide opportunities for companies to achieve their goals and maximize channel revenue from their partners. Some of these advantages include:
By partnering with indirect sales channels, companies can increase the cost efficiency of their operations. This occurs because there’s a reduction of costs associated with building and maintaining a direct sales force. A company can see significant cost savings by directing resources into a partner relationship management (PRM) program instead of hiring direct sales staff.
Access Entire Pre-Established Customer Bases
Indirect sales channels can help companies increase their market share by providing access to new customers and markets. Partners often have established relationships with suppliers, distributors, and other partners, which can result in economies of scale and lower costs for both partners. They can also access new markets and customer segments that may be more cost-effective to sell to than direct sales channels.
Test New Markets with Limited Investment
Companies that are considering expanding their in-house sales reach into new markets can use an indirect sales model to test out the waters, so to speak. For example, a growing small business may want to see if their product sales will perform well by expanding from their current Mid-Atlantic market to New England. Rather than open a satellite office in that region, the company can use indirect sales channels to place their product in complementary stores in the new market. If sales perform well over a few months, the company can then decide to put a team on the ground there.
Create a Partner Ecosystem
Creating a partner ecosystem not only results in increased market reach and sales but also adds access to partner expertise and complementary skills. This means improved customer experience and support, increased brand recognition and reputation, and increased revenue and profitability potential.
Another key benefit of a partner ecosystem is that, when a parent company connects with channel partners, those partners may also be able to connect with each other. This creates a sort of forum for comparing notes, where everyone can help each other succeed.
For example, lawn and garden company Bradley Caldwell hosts an annual expo, networking event, and educational conference where their brands show off their wares. Hundreds of independent hardware store owners attend and get just as much from networking with other small business owners than they do the Bradley Caldwell brand representatives.
Focus On and Prioritize the Company’s Development
Companies can grow their sales and brand reach through others by creating a channel partner program with a robust partner relationship management system, company sales leadership is freed up to focus on other areas of the company’s development. Once a solid PRM system is in place, one or two channel partner managers can oversee an entire revenue stream for a company, freeing up resources and staff to focus on product and sales development.
How Can Your Business Grow With Relevize?
Using a software that excels in channel partner management is an important step towards launching an indirect sales model. Relevize does just that, allowing your business to maximize your market development fund spend.
Relevize allows channel sales teams to increase visibility into their partner-generated sales pipeline, and scale that growth to maximize their channel sales revenue, providing a centralized platform for managing leads, automating emailing and scheduling, and tracking sales activities to ensure proper credit and commissions are issued for closed sales. To see other ways in which Relevize can help your business, sign up for a free demo today.